Analysts at Goldman Sachs just downgraded the athletic apparel giant, citing stronger competition in the U.S. and challenges in overseas markets where Nike has been counting on growth. Goldman expects Nike to use its investor day next week to lower expectations on Wall Street.
Goldman cut Nike to neutral from buy, reiterating a $54 price target. In other words, the firm expects Nike to move all of 3% higher over the course of the next 12 months.
Thing is, you don't need to read Goldman's latest update on Nike to figure out that something is wrong here -- a quick glance at this stock's price chart for 2017 should tell you pretty much everything you need to know. All the data is baked into the price action, after all.
Nike has moved about 3% higher since the calendar flipped to January. In other words, this stock has basically gone nowhere in the face of a rally that's propelled the big S&P 500 index more than 14% higher year-to-date, and sent a massive chunk of this market to new all-time highs.
So, yes, Nike has problems. And for most investors, the most glaring immediate-term problem is the fact that shares have lagged the broad market by double-digits this year.
That's the bad news. The good news is that Nike is actually pounding out what could be a major price reversal right now. This could set the stage for a game of catch-up in NKE shares during the final stretch of 2017. To figure out how to trade it, we're turning to the chart for a technical look:
There's a lot going on with Nike's price chart right now. That's a side-effect of this stock's mostly sideways, range-bound price action this year. But, focusing on the hard right edge of the chart, Nike is in the final stages of a textbook reversal setup: An inverse head-and-shoulders pattern. That's a big part of why this stock is managing to shake off the downgrade today.
Nike's inverse head-and-shoulders is a bullish reversal setup that signals exhaustion among sellers. The pattern is formed by two swing lows that bottom out at approximately the same level (the shoulders), separated by a lower low (the head). The buy signal comes on a move through Nike's neckline at the $52.50 level.
One important piece of side-evidence for a reversal in Nike is relative strength. Nike's relative strength gauge broke out of its own downtrend just this week, signaling that shares are actually starting to outperform the S&P 500, something that they haven't managed to do with any consistency this year. If that relative strength reversal persists, Nike could make up for significant lost time.
A breakout above $52.50 clears the way to a longer-term breakout level at $54, which, if cleared, would make a pretty unobstructed path to its 52-week highs at $60.
Next week's investor day could be a catalyst for that breakout move. That's good reason to keep a very close eye on Nike in the sessions ahead as shares flirt with breakout territory. Nike could be about to make up for lost time here.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.